Lessee Inc. provides transportation and logistics services through a global network of offices, contracting fleets of shipping vessels, trucks, and aircraft to provide regional, long-haul, and international shipments of its customers goods. The following paragraphs describes Lessees contracts with some of its vendors.

Lessee has contracted with Shippers Inc. to use its shipping vessels to transport goods from various ports routinely serviced by Shippers fleet of 25 multi-use shipping vessels, each of which has the capacity to hold 1,000 shipping containers. Details of the contract between Lessee and Shippers are as follows:

The contract term is for the duration of the voyage to transport Lessees cargo from and to specific ports in Shippers network. The typical voyage duration ranges from several weeks up to two months. Lessee does not have discretion to change the departure or arrival ports without a renegotiation of the contract fees.

Vessel 12579, a commercial shipping vessel in Shippers fleet, is dedicated to delivering Lessees cargo for the term of the contract. Shippers cannot substitute Vessel 12579 with another vessel in its fleet, nor can it use Vessel 12579 to transport goods for other customers.

The contract identifies the shipping containers and acceptable cargo to be transported on the ship as well as the transportation route. Lessee does not have discretion to change the identified cargo without renegotiating the contract fees.

Shippers is responsible for the safe passage of the cargo, as well as operation and maintenance of Vessel 12579. The crew determines the ships route, speeds, and date of departure from its point of origin. Lessee cannot, under any circumstances, replace Shippers crew.

Lessee has contracted with Flight Services Inc. (FSI) to use its aircraft to transport goods from South America to North America. FSI has a fleet of 50 multi-use aircraft, each of which has the capacity to hold 500 shipping pallets of goods. Details of the contract between Lessee and FSI are as follows:

The contract term is for five years.

Plane 19053, a commercial aircraft in FSIs fleet, is dedicated to delivering Lessees shipping pallets for entire contract term. FSI cannot substitute Plane 19053 with another aircraft in its fleet.

Lessee determines (i) the airports from and to which goods are shipped and received and (ii) the order in which deliveries are made to the airports. FSI provides the aircrafts pilot and crew, and Lessee instructs the pilot and crew accordingly.

While Lessee determines what cargo will be transported throughout the term of the contract, certain restrictions prevent the company from shipping flammable materials.

Lessee has the right to deploy the aircraft regardless of whether the cargo levels meet the full storage capacity of the aircraft. If the plane is below capacity, FSI cannot use the excess storage space to ship products of its other customers.

Lessee has contracted with Interstate Trucking Company (ITC) to use its trucks to transport goods from various distribution centers to retail stores across North America. ITC has a fleet of 1,500 multi-use, long-haul trucking carriers, each of which has the capacity to hold 100 shipping pallets of goods. Details of the contract between Lessee and ITC are as follows:

The contract term is for five years.

ITC must deliver Lessees shipments within three weeks of Lessees notification that it has pallets of customer goods ready for shipping.

ITC may choose any truck from its fleet to fulfill the shipping request.

Lessee may request shipment of anywhere from 25 to 100 shipping pallets of goods in a single request, and ITC has the right to use any excess storage space to ship products for its other customers. (Lessees individual shipping requests generally do not exceed 50 shipping pallets.)

ITC determines the shipments delivery date (within the three-week period), as well as the shipping route.

Lessees CFO has asked you for insight into how these three contracts should be accounted for in accordance with prevailing GAAP.

Case Requirements

Analyze the information provided above to prepare a recommendation regarding the proper accounting for each of the three contracts. Be certain to address:

Whether (including why or why not) each contract qualifies as a lease;

The likely classification (as operating or finance) of any contracts qualifying as leases, including the reasoning for that classification; and

The likely financial statement impacts of each of the three contracts.

Reference the authoritative guidance provided in ASC Topic 842, Leases, to support your recommendations.